What is Ripple and XRP

The Ripple Transaction Protocol is a real-time settlement system designed to be used by banks for currency exchange, remittance and gross settlement. The idea is to replace age old systems like SWIFT – which was developed in 1972 and used by most banks today. The Ripple protocol offers significant advantages in both speed of transfer and transfer tracking. Ripple uses distributed ledger technology, similar to Bitcoin. When compared with Bitcoin, it is faster and cheaper to send on the ripple network. However, there is one significant trade-off which is its lack of decentralization. The Ripple network is closed off and cannot be joined by any user – meaning there is a significant amount of centralization.

One point of common confusion is that the Ripple protocol is frequently confused with the currency XRP (also named Ripple) issued Ripple Labs. The XRP is an issued token that uses the Ripple network – it can be sent extremely quickly and with low fees. However, it should be noted that the XRP is not required for the network to work nor is it required for banks to use it if they choose to adopt Ripple.

Ripple Currency (XRP) vs the Ripple Protocol

So lets start off with one confusing factors. So I must make a distinction between Ripple the transaction protocol (which is used between banks and other businesses) and the ripple issued currency, XRP. When you see Ripple making gains its actually the XRP, the currency that is issued by Ripple, that is gaining. And this is actually quite different from the network protocol or Ripple protocol. Both share the same name and I’m sure this has definitely confused a lot of investors.

Ripple Protocol

So lets start off with the transaction network known as Ripple. So the Ripple protocol is based on technology that’s similar to blockchain but not completely the same. It doesn’t require any mining and its based on a consensus network instead of being consumer-facing which is what Bitcoin is. Basically, it’s for the everyday person.

Ripple is exclusively used by big institutions such as banks. The whole idea of Ripple is to allow banks to transfer any sort of asset, be it currency, USD, Euro, gold, or any other asset such as airmiles. You can transfer that between other institutions near instantaneously. This rivals systems such as swift. So if you ever bought Bitcoin with bank transfer you will know how painful that is. You have to contact your bank and send the transaction to a swift bank code account and this might take up to two to three days and theres a lot of transaction fees involved for both the sender and the receiver. Ripple is set to revolutionise this by providing near instantaneous, sub-second transactions for institutions such as banks. It’s already been adopted by quite a few big banks and

XRP – Currency of the Ripple Network

So now that I explained what is the Ripple transaction protocol, let’s move on to Ripple XRP. XRP is actually issued by Ripple Labs and is a form of cryptocurrency that can be traded and it’s not “mined”. So there is a finite number of ripples and that amount is actually issued by the company behind Ripple called Ripple Labs. Currently, it is freely tradable on numerous exchanges such as Poloniex.

XRP by itself has no underlying related assets or values eg. Its not tied to USD or gold. Rather, it can be used to act as an intermediate currency in institutions. It has one huge advantage in that transaction costs are very, very low (unlike Bitcoin, which is now reaching 1.5 usd in transaction fees).

Concerns about Ripple

So moving on, XRP is currently only issued out at less than 40% of its total. The remaining amount (minus the 20% retained by the creators of Ripple) is held by Ripple Labs to distribute whenever and however they so wish. This is actually kind of interesting because unlike a lot of decentralized currencies, Ripple Labs plays a huge part in distributing XRP. Ripple Labs is actually a company and this is very different from Bitcoin, where Bitcoin is fully decentralized and doesn’t have a central controlling authority. Ripple Labs is registered in many countries and it could be sued and held under police custody. This is again very different from other technologies.

So that’s a little information regarding the Ripple protocol and XRP. I’m sure this may be a little bit confusing for some people and since the technology and the currency share the same name it could be misunderstood. I hope this clarifies a little for you about what Ripple protocol is and what XRP is.

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Hello – I found this article and video very interesting… I’m wondering if you have any thoughts as to what the value proposition is for xrp? You mentioned there are low transaction costs vs bitcoin, but is that a property of ripple or xrp itself? Why might banks use xrp in conjunction with the ripple protocol vs just using the ripple protocol alone?

Value proposition is virtually impossible to calculate at this current phase – mostly because this technology is still mostly unproven / undiscovered. There uncertainty elements, such as competing technologies / bank developed blockchains obscure the future even more. The XRP is a highly speculative coin.

Hello Boxmining, I love your show. Huge fan and thanks for all your hard work. Regarding Ripple, it is very easy to understand the use and how it can help the banking system in a revolutionary way. No doubt! But what I don’t get is how their adaptation would push the price of the coin (XRP) to be up except for investor chasing it up. There is no fundamental reason why, please explain! If I am a bank, and i use Ripple coin as my transfer device would not I want XRP is stay constant at 1 and never change. ideally, i dont want it move up and down whatsoever. In short, what does this amazing tech has anything to do with the price of the coin whatsoever. Iam long XRP because I think investor will chase it up but I have no other reason. Can you answer that? Thanks!

Hello Boxmining, one more item. Since Ripple is not decentralized and pretty much controlled by Ripple Lab, can they arbitrarily add more coins out of thin air and dilute the system? Thanks!

Again, a huge fan and watched a ton of your video. I love your approach, you provide facts and honest assessment on the topic. Excellent! And not some dumb ass random prediction like Bitcoin to $1 million.

I am new to this and want to invest in Ripple but now I am unsure if I want to invest in Ripple or XRP or both? I was one of the confused that thought XRP was Ripple. I haven’t bought any cc yet, but was getting ready to buy when I ran across this platform. Any thoughts?